Initial jobless claims fell in early May, labor market remains resilient under tariff pressure
Data released by the U.S. Department of Labor on May 8 showed that initial jobless claims for the week ending May 3 fell to 228,000, down from 241,000 the previous week; continuing claims also dropped to 1.88 million. Despite the Trump administration imposing a 10% baseline tariff on most trading partners and a 145% tariff on Chinese goods since April 2, and warnings of economic risks from Federal Reserve Chair Powell and multiple institutions, employment data still showed market resilience. Powell stated that the labor market is near full employment, with the April unemployment rate at 4.2%, and emphasized that policy will be assessed based on overall labor data. A New York Fed survey showed that household expectations for the job market deteriorated in April, with the average probability of a rising unemployment rate hitting a new high since April 2020.
At a Glance
- Initial jobless claims fell in early May, data from the U.S. government showed on Thursday, underscoring the resilience of the labor market even as tariffs at their highest levels in decades and warnings from Wall Street cast a shadow over the strength of future economic growth.
- The U.S. Labor Department said initial claims for state unemployment benefits fell to 228,000 for the week ended May 3, from 241,000 the prior week.
- The number of people receiving ongoing unemployment benefits, a proxy for the number of unemployed workers, fell to 1.88 million in the week ended April 26, from 1.91 million the previous week.
In-Depth Analysis
Economists in both the private and public sectors have pointed to risks to the employment and economic outlook after the Trump administration announced on April 2 a baseline tariff of 10% on most U.S. trading partners and additional import duties of 145% on Chinese goods.
"If the announced large tariff increases are sustained, they are likely to lead to higher inflation, slower economic growth, and higher unemployment," Federal Reserve Chair Jerome Powell said on Wednesday after policymakers decided to keep borrowing costs unchanged.
Economists at Goldman Sachs, Citigroup, and several other institutions have warned that import tariffs could slow economic growth, stoke inflation, and hurt employment.
Powell said the job market remains stable for now, noting that the unemployment rate was 4.2% in April.
"The unemployment rate is low, and the labor market is at or near maximum employment," he said.
Powell said policymakers will focus on labor force participation, wage growth, and unemployment conditions, including the pace at which the unemployment rate is rising, when assessing whether to lower the federal funds rate.
"We will look at the entire large labor market data set to judge whether conditions are really deteriorating," he said.
Despite unpredictable outcomes from President Donald Trump's changes to trade, regulatory, immigration, and tax policies, U.S. businesses have largely kept their workforces intact.
Powell said the economic outlook is particularly uncertain.
"There is too much uncertainty," he said. "If you talk to businesses, market participants, or forecasters, everyone is waiting for developments before we can better assess the appropriate path for monetary policy."
"We think the appropriate thing to do now is to wait and see how things evolve," he said, noting that policymakers unanimously decided to keep the federal funds rate in the range of 4.25% to 4.5%.
The New York Fed said on Thursday that consumers' expectations for the labor market declined last month.
"Labor market expectations deteriorated sharply in April, with households' expectations for income growth and finding a job both declining," the New York Fed said in a monthly survey report.
The New York Fed, citing the survey, said the average probability of the unemployment rate rising within a year increased by 0.1 percentage point, reaching its highest reading since April 2020.
According to the New York Fed, the median expectation for income growth over the next year fell by 0.3 percentage points to 2.5%, the lowest reading since December 2023.